Zenith Report Scorns ITV’s Digital Plans

The comments come after ITV chief executive Stuart Prebble recently claimed that the digital business will break even in 2004 (see ITV Digital Places Breakeven At 2004). Zenith is quoted as describing this as ‘fantasy’ and is calling for ITV to ditch the business altogether. This echoes the reported views of a number of Carlton and Granada shareholders, who were also in favour of withdrawing from and writing off the venture (see Granada Faces Investor Pressure Over ONdigital, Reports FT).

The costs of setting up and running ITV Digital are expected to break the £1 billion mark before the company breaks even. Zenith claims that very little of this money will be returned to ITV from the venture.

Comment ITV Digital now faces seemingly insurmountable competition from BSkyB: ITV has around 1.2 million customers, Sky has 5.5 million; ITV’s churn is 23%, Sky’s is 10%; Sky has a long-standing business in the subscription TV arena, ITV does not. Even the rebranding to ITV Digital of ONdigital was instigated precisely because the business was ailing under its previous guise. It was hoped that the strength of the ITV brand would help boost customer take-up.

Throw into the equation the slowdown of advertising revenues generally – with TV and Carlton and Granada hit particularly hard (see Forecasts) – and the continued costs of investing in digital and the problems for the two ITV giants become clear.

BSkyB now arguably faces more competition for the pay-TV market from the cable companies than it does from ITV. This is well-illustrated in the Merrill Lynch forecasts graphed below. Even cable, which started out almost two years behind ITV, is expected to reach Sky’s customer levels by 2008, whilst ITV Digital is left languishing below the three million mark.

Source: Merrill Lynch, 04/01